This is worrisome about Freddie and Fannie, the mortgage giants.
While the stock declines of Fannie and Freddie were sharp, the biggest impact from their troubles could come in the mortgage market. If the companies fall short of capital, they would have a harder time buying and guaranteeing mortgages. That would raise home buyers’ borrowing costs and likely drive down home prices further. On Monday, investors sold off the debt of the two companies, effectively making it more expensive for them to borrow.
Fannie and Freddie are government-chartered companies that provide the bulk of funding for U.S. home mortgages. They own or guarantee about $5.2 trillion of home mortgages, or roughly half of all home loans outstanding.
We had a mortgage meltdown last summer which significantly undercut housing prices since then. A crisis at Freddie and Fannie would raise the ante of another meltdown since they are considered sort of a safety net for the U.S. mortgage industry.